Aug. 15 (Bloomberg) -- Confidence among U.S. homebuilders
rose in August to the highest level since 2005 as demand for new
homes supports the market amid rising mortgage rates.

The National Association of Home Builders/Wells Fargo index
of builder confidence climbed to 59 from a revised 56 in July,
which was lower than previously reported, the Washington-based
group reported today. The median forecast in a Bloomberg survey
of economists called for the gauge to be 57. Readings above 50
mean more builders view conditions as good than poor.

Mortgage rates that have climbed since May are failing to
curb builder confidence as supply constraints push buyers toward
new homes, a sign that recovery in the housing market can be
sustained. Further improvement in residential construction
should help economic growth pick up through the second half of
the year.

“Someone who’s thinking of buying a home, not wanting to
get a fixer-upper and not having a wide selection of non-distressed homes, will turn to new homes,” Millan Mulraine,
director of U.S. rates research at TD Securities USA LLC in New
York, said before the report. “Even though we expect some
moderation in sales, the demand for new homes remains quite
buoyant.”

Estimates in a Bloomberg survey of 47 economists for the
homebuilder index ranged from 54 to 60. This is the gauge’s
third consecutive reading above 50, and is the highest since
November 2005, when the measure reached 61.

Jobless Claims

Claims for jobless benefits unexpectedly dropped last week
to the lowest level in almost six years, signaling the U.S. job
market continues to mend. The number of applications for
unemployment insurance payments declined by 15,000 to 320,000 in
the week ended Aug. 10, the fewest since October 2007, from a
revised 335,000, a Labor Department report showed today in
Washington.

Two of the three components of the homebuilder survey
showed improvement. The group’s measure of the sales outlook for
the next six months increased to 68 in August from 67 the prior
month. The index of current single-family home sales rose to 62
from 59. Prospective buyer traffic was unchanged at 45.

Builder confidence was mixed in the four U.S. regions, with
a gauge of sentiment among companies in the Midwest rising to 64
from 62, while sentiment in the South climbed to 56 from 54.
Confidence in the Northeast was unchanged at 40 while sentiment
in the West declined to 59 from 61.

Continued Strengthening

“Builder confidence continues to strengthen along with
rising demand for a limited supply of new and existing homes in
most local markets,” David Crowe, chief economist at the
builders association, said in a statement.

Historically low borrowing costs for homebuyers have
climbed over the last three months. The average rate for a 30-year fixed mortgage climbed to 4.4 percent in the second week of
August, up from 3.35 percent at the start of May, McLean,
Virginia-based Freddie Mac said in a statement. The rate reached
an all-time low of 3.31 percent in November.

Housing has been “strengthening, but mortgage rates have
risen somewhat, and fiscal policy is restraining economic
growth,” the Federal Open Market Committee said July 31 at the
conclusion of a two-day meeting in Washington.

Supply constraints in the housing market, an improved
employment picture and the attractiveness of homeownership are
still on the side of builders even after the run-up in rates,
Allan Merrill, chief executive officer of Beazer Homes USA Inc.,
said on an Aug. 1 conference call. The Atlanta-based company
said new home orders fell to 1,381 in the third quarter, which
ended June 30, from 1,555 in the same period in 2012, while home
closings rose to 1,234 from 1,109.

“While we may not be in the first inning of the housing
recovery, we’re still a long ways from the seventh inning
stretch,” Merrill said on the call.